JAL rehab plan gets green light

12/2/2010

Japan Airlines (JAL) has received final approval of its rehabilitation plan. The national carrier, which filed for bankruptcy protection at the start of the year, submitted the drastic restructuring plan to the Tokyo District Court in August. Following the recent endorsement of its creditors, the court yesterday confirmed that it would also approve the airline’s proposal.

JAL has spent the last 10 months slashing its operations. The rehab plan, set out by the carrier’s state-run administrator, Enterprise Turnaround Initiative Corp of Japan, includes a JPY521.5 billion (US$6.2 billion) debt waiver from its creditors, a reduction of about 16,000 jobs, or approximately 30% of its total workforce, the cancellation of 45 routes and the retirement of 103 older, less efficient aircraft. The court’s decision was far from certain however. Until just last week, the threat of industrial action by JAL’s pilots was putting the plan in jeopardy. Had the pilots voted to strike, JAL’s creditors were unlikely to have agreed to the turnaround plan. Had that happened, the court is unlikely to have given its approval.

While the court’s ruling seems to mark JAL having overcome the final hurdle in its troubled year, the carrier still has plenty of work to do to get back on track. Unsteady oil prices, a sluggish economic recovery and strong domestic and regional competition from the likes of ANA and its planned low-cost subsidiary, the expanding Skymark Airlines, and the arrival of AirAsia and other LCCs into Japan may still destabilise JAL’s recovery. Its target of posting a 2012 operating profit of JPY117.5 billion however, now at least appears more likely.